Why breaching competition law may just have become much more costly

Why breaching competition law may just have become much more costly

On 10 September, the Office of Fair Trading (OFT) released new guidance about how it intends to apply penalties for breaches of competition law.

The guidance was approved by the Secretary of State following a consultation period that began in October 2011.

The OFT considered it was high time it revised its guidance, which had been in force since 2004.

Over the years the OFT has gained considerable experience in applying penalties, including learning a few hard lessons, most notably from the construction cover pricing case, where the Competition Appeal Tribunal (CAT) reduced a number of fines imposed by the OFT.

It has been keen to filter this experience through into new guidance.

So, what's changed?

The biggest change is the hike in the starting point for penalty calculations, which is now set at a maximum 30% of the relevant market, rather than 10%. This brings UK policy into line with the European Commission and many of the OFT's European counterparts.

The increase gives the OFT greater scope to apply penalties that more accurately reflect the seriousness of a particular infringement. And the OFT hopes the new 30% limit will have a deterrent effect, not just to ensure businesses do not break competition law to start with (general deterrence), but also to keep businesses that have already been fined on the 'straight and narrow' (specific deterrence).

The OFT will also now base its calculations on turnover from the last year before the infringement ended, rather than the year before the decision is made. This reflects the CAT's judgments in the construction cover pricing case appeals.

Another change is to the order in which the OFT will consider elements of a penalty. Now, it will look at mitigating and aggravating factors before deciding whether to make adjustments for deterrence and proportionality.

The OFT has also clarified that evidence of active compliance with competition law could earn a reduction in a penalty of up to 10%.

Finally, a new 'step' has been introduced, which allows the OFT to formally consider leniency and settlement discounts. It will also be able to specifically assess whether a penalty achieves proportionality 'in the round'.

What do the changes mean?

OFT senior director of group policy Jackie Holland said she hoped the new guidance would 'give businesses and their advisors even greater clarity and transparency about our approach to setting penalties'.

Although the guidance is now much clearer, the increase to a maximum 30% of turnover starting point will surely be worrying for many businesses. The OFT possibly felt the previous 10% maximum limit meant that its bark was often perceived to be worse than its bite.

Of course, the OFT's hands are tied by statute, so that overall it cannot impose a fine of more than 10% of a businesses' worldwide turnover. But if the starting point in the relevant market is higher, inevitably this will translate into larger final penalties than might have been awarded under the previous guidance.

However, the fact that proportionality and leniency is now more particularly addressed in the guidance suggests the OFT is perhaps more interested in the deterrent effect of the new 30% limit.

It is also clear that it is increasingly important for a business to have all of its competition compliance 'sorted', so that, if something does happen to go awry, a discount might be available.

Businesses that do not have policies, procedures and training measures in place would be well advised to seek legal advice to make sure they are as protected as possible.